How to Make The Jump from Mobile Commerce to Mobile Wallets

Mobile commerce is on the rise but providers need to offer an enhanced customer buying experience to get consumers to pay with their mobile devices at the point-of-sale.

Mobile commerce grew exponentially in 2012, evidenced by the big increase that companies like PayPal saw in mobile payment volume this past holiday shopping season. But that trend of customers using the mobile device to pay for online purchases will not necessarily mean that they will jump to using the device as a mobile wallet at the point-of-sale. For the near future mobile payments and mobile wallets seem to be on divergent paths, with customers becoming more comfortable making online purchases with their phones and tablets, while mobile wallets lag behind, says Mike Heindl, a principal at PwC’s financial services advisory practice.

While several new mobile wallets were released or piloted in 2012, such as Isis and PayPal’s second version of its digital wallet, Heindl says he doesn’t see mobile wallets adoption picking up in 2013 or even 2014. Many in the payments industry suggest that the key to mobile wallet adoption is in offering loyalty rewards and coupons to entice the customer. But Heindl says he thinks that it will take more than that to get customers to put their physical wallets in their mobile devices. The key will be offering a different - and better - payments experience than the one offered by cards payments. “People are used to paying with plastic. There has to be a payments experience that’s better [with mobile wallets]. No one has cracked that yet,” Heindl comments.

Mobile wallets providers have to start thinking about what a perfect buying experience with the mobile device would be like, Heindl suggests. “I can see value in never having to walk through a checkout line,” he explains. “Really in a perfect world you’d never have to interface with the wallet. It would understand our preferences. If I’m making a large purchase it would know I like using this credit card for that; and it would know I like putting smaller purchases on my debit card.”

The path to mobile wallets adoption will remain uncertain and murky for some time, and given that environment Heindl says financial institutions would be wise to build relationships with multiple players in the industry. “We tell issuers to keep their options open, because nobody knows which players will win right now,” he reasons. “They [banks] have to be prepared for any scenario.” In its annual white paper on mobile payments PwC advised banks and issuers to focus these relationships on players who offer differentiating factors such as analytics, value-proposition design and an enhanced customer experience.

And banks also need to strengthen their relationships with their customers, he adds, by building a better understanding of their customers by breaking down organizational silos. This will help build customer loyalty no matter what happens in the mobile wallets market. “Customers want to deal with financial institutions. They don’t trust the new entrants [to handle their money]. The only way they [financial institutions] lose is if they fall asleep at the wheel.”

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

I think mobile (or digital) wallet usage will still need a little while longer to catch on, but I think it will be earlier than several years. Personally, my biggest concern is security, followed by convenience. If you can convince me that I am absolutely safe using a mobile wallet, I would be more inclined. Couple that with making it as easy (as Mike Heindl suggests) as using plastic, and I would totally be on board in a heartbeat.

After all, it isn't unusual for me to go to a restaurant with friends and have to divide the payment four ways on a credit card since none of us carry cash at all. I would think many people encounter the same problem. Imagine if there was something we all could do with our phones that would instantly solve the problem?

Trust is definitely one of the key issues here. Consumers are much more likely to go with their trusted financial institution than with a new entrant. Unless the new entrant partners with a well-known bank, and the bank is the brand name behind the mobile wallet. But even then, mobile wallets still have to provide a real added benefit, beyond knowing if you are going to typically pay with your credit or debit card. It will be interesting to see new, truly innovative solutions entering the market.

This point, I think, is the heart of the reluctance to getting customers to convert to m-wallets entirely: G«£Customers want to deal with financial institutions. They donG«÷t trust the new entrants [to handle their money]." I do think that banks who strengthen their relationships with their customers will put themselves in a better position to capitalize on the opportunities with mobile wallets. The more frequent the communication with the customers -- and the more informative -- the better the chance that a a more trusting relationship can be fostered. Thus, the better chance you have of encouraging users who are still worried about third-arty apps accessing their information to sign onto the idea.

His comments about what banks need to do are interesting. It doesn't sound like he necessarily expects banks to be offering m-wallets directly, but they should be aligned somehow with those who do? [Note: from Kathy B, somehow my profile has been "hijacked"]

Like Heindl says, I don't see mobile (or digital) wallet usage really picking up for several years. New technologies are always slowly adopted at first before finding widespread use. Whether mobile wallets will find that remains to be seen.